Decisions — Guarding the deductions

Ah, the life of a bodyguard. Long boring hours. Annoying clients. Moments of sheer terror. And tax deductions.

In T.C. Summary Opinion 2018-7 (Colbert), the taxpayer was a bodyguard for Hollywood celebrities. He worked from home and traveled daily among celebrities’ residences and other worksites. His job duties included chauffering the celebrities to appointments, monitoring construction at their homes, installing and monitoring security devices, patrolling their estates, performing access control for visitors and guests, deflecting paparazzi, and responding to emergency and distress calls. He had a concealed weapon permit and carried a pistol during most of the time he was working.

The taxpayer filed his 2013 federal individual income tax return on time. He claimed miscellaneous itemized expenses of $23,965, including unreimbursed employee business expenses of $23,552 connected with his bodyguard work.

The IRS disallowed most of the deduction, stating that the expenses were not “ordinary and necessary.”

Here’s a breakdown of the expenses in question.

1. On-Duty Security Expenses

The taxpayer spent $1,154 for replacement of his duty pistol and for target practice. He was required to carry a concealed weapon while on duty, and he credibly testified that he was not reimbursed for these expenses. The tax court found that these expenses were “ordinary and necessary.”

The taxpayer also paid $86 for an earbud to avoid annoying celebrity clients, $26 for a flashlight for evening patrols on celebrity estates, and $92 for sanitary handwipes and similar expenses that he paid while on duty.

Were the earbud, flashlight, and handwipes ordinary and necessary in the course of the taxpayer’s business?

or

2. Clothing

The taxpayer’s employer provided a blue jacket or vest that constituted his uniform. Apart from that, he was required to wear khaki trousers and polo shirts or similar attire. He claimed deductions of $1,111 for the purchase of clothing and shoes worn to work and $600 for the estimated cost of dry cleaning of his work attire.

Was the clothing expense ordinary and necessary in the course of the taxpayer’s business?

or

3. Other Expenses

The taxpayer incurred expenses of $290 for newspapers and magazines, $875 for a gym membership and weight loss pills, $358 for satellite radio, and $86 for membership in Amazon Prime. The taxpayer testified that he needed to look good and be informed of local events in order to impress his celebrity clients.

Are these expenses ordinary and necessary in the course of the taxpayer’s business?

or

4. Home Office Expenses

The taxpayer worked from home when not in his car or detailed to celebrity residences. He claimed a deduction of $2,750 for home office expenses, a deduction of $133 for office supplies, and a deduction of $1,603 for an iPad, printer, and related items.

Under internal revenue code section 280(A), no deduction is allowed with respect to a home office unless, as relevant here, “allocable to a portion of the dwelling unit which is exclusively used on a regular basis” as the taxpayer’s principal pace of business.

Since the taxpayer admitted that the room he used as a home office was not used exclusively for that purpose (it was also used (among other things) as a spare bedroom and exercise room), the court determined he was not entitled to any home office deduction.

In addition, by not meeting the home office deduction requirements, the taxpayer would have had to maintain records for the iPad, printer, and related items. Because he failed to meet these enhanced substantiation requirements, the court disallowed the expenses.

Was the $133 the taxpayer spent on office supplies ordinary and necessary in the course of his business?

or

5. Utility Expenses

The taxpayer claimed a deduction of $4,573 for phone service and $430 for the purchase of an iPhone and cover. The phone bills included not only wireless service for the taxpayer, but also basic telephone, internet, and television service for his home.

The court denied these deductions under internal revenue code section 262(b), which provides that, “in the case of an individual, any charge * * * for basic local telephone service with respect to the 1st telephone line provided to any residence of the taxpayer shall be treated as a personal expense.”

Were cell phones considered listed property in tax year 2013, and therefore subject to strict recordkeeping rules?

or

***

Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

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✓Right answer!

We (the court) find deductible his expenditure of $86 for an earbud (to avoid annoying celebrity clients), $26 for a flashlight (for evening patrols on celebrity estates), and $92 for sanitary handwipes and similar expenses that he paid while on duty.

Sorry, wrong answer :(

Sorry, wrong answer :(

✓Right answer!

We (the court) find that none of these expenses is deductible. The clothing and shoes were suitable for use as ordinary street wear, and their costs are thus nondeductible.
The cost of dry cleaning clothes worn to work is likewise a nondeductible personal expense.

Sorry, wrong answer :(

✓Right answer!

We conclude that these costs were not “ordinary and necessary” expenses of his business but rather were “personal, living, or family expenses” nondeductible under section 262(a).

✓Right answer!

We (the court) will allow his claimed deduction of $133 for office supplies as an expense sufficiently related to his business.

Sorry, wrong answer :(

Sorry, wrong answer :(

✓Right answer!

For 2013 cell phones were not “listed property” under section 280F(d)(4), and the taxpayer was not required to meet the strict substantiation requirements of section 274(d).

However, the taxpayer must still show that he used his cell phone for business rather than personal purposes and provide some credible evidence to establish the extent of business use.

Because the taxpayer provided no credible evidence to establish (1) the extent to which he used his cell phone for business purposes or (2) the extent to which the phone company charges corresponded to business use of his cell phone, we (the court) accordingly sustain the IRS’s disallowance of a deduction for these expenses.